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Libor Scandal: UBS Plays the “Most Dangerous Game”

Posted by Larry Doyle on August 9, 2012 9:00 AM |

“You want loyalty? Get a dog.”

Wall Street management was notorious for playing the loyalty card with employees when they were preparing to screw them during bonus season. I am going to guess that those loyalty conversations do not carry much weight anymore. Certainly not at UBS.

In what I would define as the financial equivalent of the classic story, “The Most Dangerous Game“, the intrigue currently within the offices at Union Bank of Switzerland redefines the Wall Street employer-employee relationship. Let’s navigate into this unknown and uncharted territory. 

The Wall Street Journal highlights, Ex-UBS Traders Offered Deal by U.S. in Rate Probe:

U.S. prosecutors have agreed to shield several former UBS AG employees from criminal charges in return for their cooperation with the escalating investigation of suspected interest-rate manipulation, according to a person close to the probe.

The leniency deal was offered to former traders and other employees who had relatively junior-level jobs at the Swiss bank, the person said.

No more than a few of the UBS employees under investigation for alleged interest-rate manipulation still work there, and the company has fired or suspended about 20 traders and managers as a result of the four-year inquiry, another person familiar with the investigation said.

Despite the fact that the article references that deals have been struck with former UBS employees, can you imagine the water cooler chat within UBS as current employees wonder who in the organization might be working for the hunter and who is the hunted?

Can you further imagine selected employees wondering whom they can trust and what they might say not knowing how the information might be used? I can only think that some employees may want to have their lawyer present or on call when approached for a conversation.

What makes this situation even more challenging and unsettling for both past and current employees? The fact that UBS has already negotiated an institutional settlement with selected departments and regulators.  Do you think those settlements might protect the senior executives within the organization? As the WSJ highlights:

UBS itself has disclosed in regulatory filings that it secured leniency deals with the Justice Department’s Antitrust Division and competition regulators in Switzerland and Canada.

How does any leniency deal occur in light of the fact that,

. . . the company has fired or suspended about 20 traders and managers as a result of the four-year inquiry, another person familiar with the investigation said.

If 20 traders and selected managers at UBS have been fired for their involvement in the largest financial scandal EVER, are we supposed to believe that the most senior executives within the institution were not aware — or failed to supervise and should have been aware — of the manipulation as it occurred over many years? To accept that premise would take naivete to the extreme. Yet the institution is allowed a leniency deal and assuredly a fine as the rank and file “get hunted.”

How might we ever know if those currently being hunted were not merely following orders from senior management? Especially if the senior management is afforded the institutional protection embedded in the leniency deal?

This smells of crony capitalism at its absolute worst. Who is one of President Obama’s closest relationships on Wall Street? The recently departed former UBS senior executive Robert Wolf. As expressed just yesterday by Elliott Management and delivered at the widely read blog Zero Hedge:

Opaque, overleveraged and vulnerable Financial Institutions which need to be propped up by the implicit or explicit guarantee of sovereigns does not make for a solid financial plumbing system for the global economy… this is a formula for power entrenchment, favoritism and shady deals behind closed doors.

The government, lacking deep understanding of these firms, wants to pretend that their gigantic efforts (most notably Dodd-Frank) actually fixed the situation. But we believe that citizens are angry at what their guts tell them (correctly, basically) about the special treatment and riskiness of Financial Institutions.

Welcome to UBS and welcome to Wall Street.

I think I will go take a shower.

Related Sense on Cents Commentary

Libor Scandal: Trader Highlights  Manipulation in 1991
Barclays Libor Scandal: Naming Names
Barclays Libor Scandal: Wake Up, America!!
Barclays Libor Scandal: The Complicit Regulators
Barclays Libor Scandal: The Precedent
Barclays Libor Scandal: Holding Regulators to Account
Barclays Libor Scandal: “Diamond Lied”
Barclays Libor Scandal: Who’s Really to Blame? 
Barclays Libor Scandal: When Did Manipulation Start?
Barclays Libor Scandal: How Big Will This Get?
Barclays Libor Scandal: Reports Regulators Knew; Time for Independent Investigation and Eliot Spitzer
Barclays Libor “Price Fixing”: Collusion Is Illegal. . .
Barclays Libor Scandal: Prison Will Remedy

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Andrew

    The frequency with which these banking “scandals” are being revealed is astonishing. And yet, the major averages reflect little in the way of concern. Are we hypnotised by central bankers? QE will solve each and every problem, right?

    • LD


      QE is an attempt to keep the house propped up while these scandals reveal the fact that the financial foundation is rotten to the core.

      A house without foundation will not stand for long.

      • Andrew

        I agree. I hope I am positioned correctly when… Afraid that it may not matter afterwards.

  • coe

    LD – It seems to me that the cultural “mutual allegiance” bonds that tied employees to the firms they worked for have long fled the scene. I attribute that partly to the change that swept over the industry when the partnerships went public, and suddenly the “inmates” (if only) were playing with house money, and not with heir own..

    as times changed and profit pressures mounted, and as pay packages escalated to surpass the GDP of some third world countries, the “firms” and their self-serving executive managing directors (talk about an oxymoron – they manage nothing well and only direct things to their own best ends!) suddenly got amnesia about the cultural commitment to their employees (who, by the way, actually do the work but get little of the trickle down glory)

    Then the Jamie Dimon and Bob Diamond types stand in front of analysts and investors and crow about their strength of leadership and talk to “restructuring” charges and massive right-sizing (all code for firing thousands of loyal and capable employees)…the analysts politely clap, the investors are finessed into believing how lucky they are to have these titans in charge of the biggest scam in business – i.e. arbitraging federally insured cheap funding into risky mutual fund style investments

    As for UBS, who have well chronicled multiple experiences of corporate restructurings under their belts, are you shocked to see the execs circle the wagons around the mother ship and go after the lower level lieutenants, who, if guilty of anything, were only trying to emulate their bosses into getting admission into the rarified air of pay for perceived performance, no…make that performance

    That Robert Wolf was a “friend of Obama” only makes the story more juicy…somehow, a modest corporate bond salesman from Salomon Brothers rose to the heights that he did for an enormous multi-lateral/universal foreign bank – only in America, LD…only in America

    And the exclamation point is that the enforcement folks are only too happy to accept a dispassionate settlement fine from the corporate level, – just make it go away – while siccing the dogs on the street level runners in the fiasco.

    you cannot make this stuff is sickening and erodes the very confidence the financial system needs to carry on!

  • Larry

    I like the series you are working on. Wolf is only one close relationship to be concerned with. I have always questioned the Geithner/Wall Street love fest, and Paulsen was no better.

    I’m reading Neil Barofsky’s book, which is confirming all my long-held suspicions.

    Keep up the good work.

  • James

    In Wall Street just like any where else in the corporate world, there are no such thing as friends or enemies. Only temporary alliances.

    Looks like Blue Horshoe doesn’t love Anacott Steel after all!

  • Max Payne

    I think the sooner the US Govt sentences most of the investment bank CEOs to 30yrs imprisonment with no bail or early release, the better.

    • Slime

      The revolution is coming. They will be first to the guillotines.

    • Keller

      You mean you think Obama would slap handcuffs on his golfing partners and biggest campaign contributors?

      Don’t hold your breath… Jamie Dimon is laughing on the 1st tee with Barry, and then shows up for the Congressional hearings on financial fraud wearing his PRESIDENTIAL CUFF LINKS, no less. (Just a little jewelry gift from his “bro” the President?).

      Not so bad … kind of entertaining to see the rats on a sinking ship attacking one another …

  • Carol

    Did you notice the article on “Naked Capitalism” web site from 08/09/2012 named : Reuters Runs Interference for Elite Corruption, Scrubs Article That Shows How Banks Get Out of Jail Free

    This article takes you through the changes that Reuters made in reporting this story. It is an eye opener.

    • LD


      Thank yo very much for bringing that to my attention and that of all the readers here.

      Here is the Naked Capitalism article you reference,

      Reuters Runs Interference for Elite Corruption, Scrubs Article That Shows How Banks Get Out of Jail Free

      Yes, this is a great read and goes directly to highlight the incestuous roles played by high profile law firms and consultants whom all too often are seen going through the revolving doors that connect Wall Street/The City and Washington/London.

      Incest is incest. It smells and it is destructive in all its forms.

      Thanks again for bringing this commentary to our attention.

  • Gary

    UBS You and us.

    A truly nauseous ad from a truly evil bank.

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